Tag: SEBI

PhonePe files plaint with SEBI against Ventureast

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PhonePe has filed a complaint against Ventureast Proactive Fund-II (VPF), an AIF operating out of India, with SEBI over its planned acquisition of OSLabs.

“The complaint relates to multiple violations of SEBI’s code of conduct in relation to VPF’s recent side dealings with Affle which are a deliberate bad faith attempt to scuttle OSLabs majority acquisition by PhonePe,” it said in a statement.

“VPF has not only broken SEBI’s code of conduct, but it has also acted in complete negligence of its fiduciary duties as a large shareholder of IndusOS,” said Sameer Nigam, CEO and Founder, PhonePe.

“By deliberately derailing PhonePe’s acquisition of IndusOS, a deal which all three OSLabs founders continue to also believe is in their company’s best long-term interests, VPF has also hurt OSLabs’ long term interests,” he further said, adding that it is important to expose such unethical conduct by VPF for the sake of the larger start-up ecosystem.

“We have a very strong case and are confident that we will prevail on both fronts, and hopefully in the process also create a strong deterrent against bad actors trying to bully young startups,” Nigam said in the statement.

The SEBI complaint in India is in addition to a lawsuit that PhonePe has already filed against Ventureast and Affle in the Singapore High Court.

The lawsuit claims that VPF deliberately deceived PhonePe, by continuing to engage PhonePe and OSLabs on the sale of its shares in OSLabs in favour of PhonePe even though it had sold those same shares to Affle in a side deal without OSLabs and PhonePe’s knowledge on a prior date during a legally binding no-shop period, the statement said.

While the legal matters will be settled in court, PhonePe has now approached SEBI to look into these gross ethical violations and dereliction of VPF’s fiduciary duties to protect the interests of OSLabs, its investee company, it added.

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Centre may front load capital provisioning for PSBs this year, BFSI News, ET BFSI

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New Delhi, As the Central government draws a plan to privatise at least two public sector banks (PSB) this fiscal, it has also decided to front load capitalisation of state-owned banks so that the balance sheets of some of these entities are strengthened ahead of possible sale.

Sources said that PSBs may be provided this year just after their first quarter results before October. This would be a departure from the practice of previous year when bank capitalisation was undertaken late in the year and towards the end of fiscal.

Even in FY21, a substantial portion of capital was released right at end of the fiscal year in March.

“Front loading of capital will help PSBs to strengthen their financials that may again get impacted this year with weak lending and stress coming back on a lot of their credit assets with Covid pandemic continuing to disrupt businesses. This could also help in taking out weak banks out of the PCA (prompt corrective action) framework that would be helpful in their possible privatisation this year,” said an official source on the condition of anonymity.

The Budget 2021-22 has allocated Rs 20,000 crore towards recapitalisation of PSBs to help them consolidate their financial capacity.

Source said that more than two-third of this capital may be provided by the second quarter.

The government had earlier indicated that banks under prompt corrective action (PCA) framework or weaker banks would be kept out of privatisation as it would be difficult to find buyers for them. This would have left three PSBs, Indian Overseas Bank, Central Bank and UCO Bank, out of the government’s disinvestment plan.

But now the thinking is that they could be brought out of PCA as there are visible signs of improvement in some of the key parameters such as profitability and asset quality (in net NPA terms as they have stepped up provisioning) in the last 3-4 quarters. This could allow them to be considered for privatisation.

Provision of capital earlier in the year will give the necessary boost to them.

Finance Minister Nirmala Sitharaman had announced in her Budget speech this year that two state-run banks along with IDBI Bank would be privatised in FY22.

She also said that one general insurance company would be sold off in the current fiscal.

The recapitalisation roadmap is being redrawn for the PSBs in the current fiscal as the institutions are expected to face stress from the pandemic disruptions with fears that asset quality may further weaken like last year.

Also, the changes in valuation norms AT1 bonds has made the instrument less attractive for banks to raise their capital.

SEBI, though has amended the valuation rule of perpetual bonds in line with objections raised by the finance ministry, it still has said that from April 2023 onwards, the residual maturity of AT-1 bonds will become 100 years from the date of issuance of the bond. This will make the most used route of raising capital by banks less attractive.

Sources said that the Finance Ministry has already started a preliminary exercise to determine the capital requirement of banks in wake of limitations on fund raising norms and expected rise in bad assets during the time of the pandemic. Based on the inputs received by banks, additional capital may be provided to them from budgetary resources at the earliest.

On its part, government is strengthening the banking segment by merger and amalgamation of PSBs.

Since 2017, this exercise has resulted in seven large and five smaller PSBs.

The measures (based on bad loans and regional factors) were intended to help manage capital more efficiently. But emerging regulatory needs and pandemic affected businesses continue to pose challenges for banking segment.



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Franklin Templeton to move SAT against SEBI order

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Franklin Templeton and its top executives have decided to move the Securities Appellate Tribunal against SEBI’s order that banned the company from launching any new debt schemes for two years in addition to imposing a fine of ₹5 crore on the fund house.

“We strongly disagree with the findings in the SEBI order and intend to file an appeal with the Securities Appellate Tribunal,” said Franklin Templeton spokesperson on Tuesday.

“We place great emphasis on compliance. The decision by the Trustee in April 2020 to wind up the funds was due to the severe market dislocation and illiquidity caused by the Covid pandemic and was taken with the sole objective of preserving value for unitholders,” said the spokesperson.

On Monday, SEBI asked FT AMC to return nearly ₹460 crore it had collected as management and advisory fees from the investors in the six debt schemes since June 2018 with 12 per cent interest. SEBI had found serious lapses in the way Franklin Templeton India mutual fund had managed the debt funds that were wound up suddenly last April. Additionally, SEBI imposed a penalty of ₹5 crore on Franklin Templeton India AMC for violating various SEBI rules. SEBI also levied a penalty of ₹7 crore.

Also read: SEBI bans Vivek Kudva, Roopa Kudva for one year from market in FT case

‘Trustee vindicated’

The company said the amount repaid to investors so far ranges between 40 per cent and 92 per cent of AUM across the six schemes. The current net asset value of each of the six schemes is higher than what it was on April 23 last year. “We believe this supports the decision made by the Trustee in consultation with the AMC and its investment management team to wind up the six schemes,” the spokesperson said.

These schemes provided an important source of funding to growing companies in India that to date have proven to be sound investments. Many of these holdings are now being liquidated by the schemes at fair value under normal market conditions, said the spokesperson.

Kudva mulls next move

Vivek Kudva, Head of Franklin Templeton Asia-Pacific, is also likely to move SAT against the SEBI order that found him and his family members guilty of violating the Prevention of Fraudulent and Unfair Trading Practices.

Kudva has claimed that he has already set aside the proceeds from the sale of units and will not enjoy more than what other investors in the scheme get after the closure of the schemes. “I am reviewing the order and considering appropriate next steps which may include filing an appeal before the SAT,” said Kudva.

“I have always acted in accordance with SEBI regulations, including in this instance. My personal transactions in the two schemes (under wind-up proceedings) have been conducted with no intent to gain an unfair benefit,” he added.

 

 

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RBI issues norms on Certificate of Deposit, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India (RBI) on Friday said Certificate of Deposit (CD) shall be issued in minimum denomination of Rs 5 lakh and in multiples of Rs 5 lakh thereafter.

CD is a negotiable, unsecured money market instrument issued by a bank as a usance promissory note against funds deposited with it for a maturity period up to one year.

The Master Direction on Reserve Bank of India (Certificate of Deposit) Directions, 2021 further said CDs shall be issued only in dematerialised form and held with a depository registered with the Securities and Exchange Board of India (Sebi).

“CDs may be issued to all persons resident in India,” it said, and added the tenor of the instrument at issuance should not be less than seven days.

Further, banks are not allowed to grant loans against CDs, unless specifically permitted by the Reserve Bank.

As per the RBI, issuing banks are permitted to buy back CDs before maturity, subject to certain conditions.

The central bank had issued draft directions for public comments in December 2020.



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RBI issues norms on Certificate of Deposit, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India (RBI) on Friday said Certificate of Deposit (CD) shall be issued in minimum denomination of Rs 5 lakh and in multiples of Rs 5 lakh thereafter.

CD is a negotiable, unsecured money market instrument issued by a bank as a usance promissory note against funds deposited with it for a maturity period up to one year.

The Master Direction on Reserve Bank of India (Certificate of Deposit) Directions, 2021 further said CDs shall be issued only in dematerialised form and held with a depository registered with the Securities and Exchange Board of India (Sebi).

“CDs may be issued to all persons resident in India,” it said, and added the tenor of the instrument at issuance should not be less than seven days.

Further, banks are not allowed to grant loans against CDs, unless specifically permitted by the Reserve Bank.

As per the RBI, issuing banks are permitted to buy back CDs before maturity, subject to certain conditions.

The central bank had issued draft directions for public comments in December 2020.



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G-Secs: In Monday’s auction, RBI gets tepid response to conversion

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Banks don’t seem too enthused to trade-in short-dated Government Securities (G-Secs/GS) they hold in their investment book for longer-dated G-Secs, going by the results of Monday’s switch/ conversion auction of G-Secs.

The short-dated G-Secs, maturing between 2022 and 2024, carry relatively higher coupon rate vis-a-vis the longer-dated G-Secs, maturing between 2033 and 2061, they were to be converted into.

Of the 10 G-Secs, aggregating ₹20,000 crore, the government wanted to switch into longer-dated G-Secs, only two got favourable response, receiving conversion offers exceeding the notified amount of ₹2,000 crore per G-Sec.

The Reserve Bank of India (RBI), which is the banker and debt manager to the government, accepted offers for conversion of GS 2022 (coupon rate: 5.09 per cent) and GS 2024 (7.32 per cent) for ₹2,000 crore and ₹1,300 crore, respectively, into floating rate bonds (FRBs) maturing in 2033.

Rejects other conversion offers

The Central bank rejected the conversion offers it received for eight other securities. Through the conversion/ switch, the Government postpones redemption of G-Secs to a later date.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “In today’s switch, only two G-Secs were converted. FRB doesn’t get traded so often. Going ahead, interest rates are expected to rise. Hence, FRB is a good switch. Response was lacklustre because tendering happens at previous day FIMMDA prices. If prices are lower, market participants would not like to tender securities.”

RBI started conducting the auction for conversion of G-Secs on the third Monday of every month from April 22, 2019.

Bidding in the auction implies that the market participants agree to sell the source security/ies to the government of India (GoI) and simultaneously agree to buy the destination security from GoI at their respective quoted prices.

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Securities & Appellate Tribunal says it can function without a technical member

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Can the Securities and Appellate Tribunal (SAT) hear matters in the absence of a technical member in the bench? In response to an objection raised by market regulator SEBI on SAT hearing cases without a technical member, the two member bench has ruled that it has the authority to run the tribunal.

In a rare instance, SAT has also marked its order copy to the Finance Ministry and the Supreme Court, and asked for it to be treated as a Public Interest Litigation (PIL) in the Apex court. SAT members were more amused when SEBI effectively questioned their ability to run the tribunal, lawyers present in the hearing said.

The members

SEBI questioned the current composition of SAT, which is currently presided by Justice Tarun Agarwala, the former Chief Justice of Meghalaya High Court, and Justice MT Joshi of the Bombay High Court.

Both Agarwala and Joshi have over three decades of experience of working with Indian judicial system. Third SAT member, CKG Nair who was the technical member retired earlier this year and SAT is awaiting another appointment in his place.

However, lawyers were of the view that in 2018, Nair was alone hearing matters for several years when appointment of the two legal members was delayed and then SEBI had no objections.

“In effect, the stand of SEBI, though it has not been stated in so many words, is that this tribunal should not hear appeals till such time technical member is appointed by the Central government. Similar assertion is being made by SEBI while filing their replies in other appeals and, therefore, it has become imminent to decide this issue,” the two member bench said.

SAT told SEBI that the the tribunals are established in aid of the constitutional courts and inclusion of technical members is only to bring specialised knowledge but that does not mean that it can substitute a judicial member nor can it mean that a judicial member does not possess specialised knowledge.

“SEBI has the option to take it in appeal to SC. SAT cannot remain defunct till the government appoints a technical member. If SAT had taken any other interpretation, it would have paralysed the appeal mechanism against SEBI Orders in India which is not desirable. It is perplexing why a regulator like SEBI had taken this stand while Depositories, Stock Exchanges, IRDAI, PFRDA did not talk like this,” said Sumit Agrawal, Founder, Regstreet Law Advisors.

Driven by rules

SAT observed that the contention of SEBI was driven by rules that state that every bench must have at least one technical member a mandatory provision and since the current bench are of judicial members, the constitution of the bench is defective and orders passed by this bench would be coram non judice (not before a judge)

“In light of section 15R of the SEBI Act, 1992, a temporary gap would not harm the quorum of the bench. In any case all the SC cases on tribunals deal with absence of a judicial member and that too, permanently. The tribunal must keep functioning with the current load of cases going up because of Covid,” said Sandeep Parekh, Finsec Law Advisors.

SAT said it would deal with the question of whether the vacancy in the SAT office of a technical member was fatal to the constitution of the tribunal?

Relying upon past SC orders and constitution of bench, the SAT observed that it had the right to hear the cases.

“The principle has been laid down by the SC that any proceedings taken before the tribunal cannot be questioned in any manner on the ground of any defect in the constitution of SAT. It protects the legality and validity of the orders passed by the Tribunal even if it is found that there was a defect in the constitution of the tribunal,” SAT said.

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Friction over newer compliances rising between auditors, regulators, firms, BFSI News, ET BFSI

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After banks and auditors opposed the introduction of joint audit norms, it’s the turn of the Securities and Exchange Board of India‘s recent rules on due diligence by alternative investment funds that are causing consternation.

The market regulator’s recent rules require alternative investment funds to conduct in-depth due diligence of their portfolio companies. According to the Securities and Exchange Board of India (Alternative Investment Funds) (Second Amendment) Regulations, 2021, which came into effect on May 5, the regulator has mandated that fund managers conduct this due diligence to make sure their house is in order.

The regulations mainly impact the private equity and venture capital funds that are registered under the Alternative Investment Funds Categories 1 & 2 and hedge funds registered under the AIF Category 3 in India.

The fund managers and trustees will have to ensure that detailed policies and procedures are in place for investments and that provisions over confidentiality, conflict of interest, Prevention of Money Laundering Act (PMLA) and addressing investor complaints are complied with.

The PPM (private placement memorandum) will be required to check on the detailed policy and procedures as well as the compliance with the code of conduct prescribed under the newly added fourth schedule. The format for reporting requirements to Sebi and trustees could also undergo a change. The new regulations would likely require funds to share the report or the procedures with the auditors.

The due diligence will have to be undertaken at the fund level as well as the investment level.

Fund managers will also have to realign investments to comply with the new regulations, as Sebi has put a threshold on the money a fund can invest in a company or another investment vehicle.

The RBI regulations

On April 27, the RBI released new guidelines for statutory auditors of financial entities to enhance the independence of auditors and tackle concentration issues. The guidelines require mandatory rotation of auditors after three years with a six-year cooling-off period, and appointment of joint auditors in entities having asset size of Rs 15,000 crore and above.

The regulations ran into opposition from bankers and auditors who wanted it to be deferred citing less time to appoint auditors and crunch. The new guidelines have come in at the end of April. We have to evaluate how we can sort of look at appointing new auditors so quickly.

Because the RBI guidelines say that existing auditors cannot continue (auditing) if they have done three years. I think in the case of most companies (non-bank lenders), the auditors would have already done more than three years, probably done four years… So, I hope that RBI defers this applicability by year or so because the year has already started, and a lot of them would have to start looking around for new audit firms,” Keki Mistry, MD and Vice Chairman Keki Mistry had told ETCFO.

“Many challenges here if implemented from FY22. Some bank auditors have already finished three years — they will only have weeks to make a new selection. The pool available to choose from will be limited for FY22 and many potential suitors would be conflicted under the new one-year cooling-off period having done such non-audit services in FY21,” Grant Thornton Bharat CEO Vishesh Chandiok had said.

Audit trail software

Earlier this year, the Ministry of Corporate Affairs had to defer by a year amendments to the companies accounts rules requiring firms to use accounting software that include features that can record the audit trail of each transaction.

Companies and auditors had cited little time left for the fiscal to end for them to shift to another software.

The second amendment to the Companies Accounts Rules, 2014, made the previous changes effective from April 1, 2022, according to the notification. The ministry had made the changes, to be effective from the start of the current fiscal, with the objective of curbing backdated entries by firms in the books of accounts.

“…for the financial year commencing on or after the 1st day of April 2021, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled,” the amendment made on March 25 had said.



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PNB report higher stress levels a year after merging two banks, BFSI News, ET BFSI

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Ahead of its plan to raise funds via qualified institutional placement, Punjab National Bank (PNB) has revealed a pile of stressed loans.

As of December, the lender had 13.2% of loans with repayment overdue for more than one month.

It had a gross bad loan ratio of over 14% for the December quarter with most stressed segments being corporate loans and small businesses. MSME dominated loans those where repayments are overdue for more than thirty days or SMA loans.

PNB’s ratio of loans that were in default for anywhere between one and 90 days stood at 20% of the overall book at the end of 2020, according to the offer document issued by the bank. It witnessed a sharp increase in its stressed loans during the moratorium period last year.

SMA accounts

The special mention account (SMA)-2 loans, where repayments are overdue for 61-90 days, rose to 8.8% as on December 31, 2020, from 2.74% as on September 30, 2020.

The SMA loans as of December 31, 2020, also include loans that were not being classified as non-performing assets (NPAs) in line with the Supreme Court’s interim stay on recognition of fresh bad loans after August 31, 2020.

With the stay vacated on March 23, these loans are likely to slip into NPAs as of the March quarter of FY21.

About 2.89% of MSME advances were classified as SMA 2 while 2.72% loans in the corporate sector were unpaid between 61 and 90 days.

In Bank of Baroda‘s offer document too, the bank’s SMA ratio surged to 21.57% as on December 31, 2020, from 8% on March 31, 2020.

These are likely to slip into the NPA bucket in the March quarter of FY21 as the stay was vacated on March 23.

while both banks had around 20% of their loans under SMA, PNB carried a much higher ratio of SMA 1 and 2 loans — 13% — compared to 9% for BoB. Segment-wise, SMA2 for PNB is nearly double that of BOB in the retail and corporate sector.

The QIP

PNB board has approved raising equity capital from qualified institutional investors to enhance its capital base. For the Qualified Institutional Placement (QIP) purposes, the bank has fixed the floor price at Rs 35.51 per equity share. The ”Relevant Date” for the purpose of the QIP is May 10, 2021 and accordingly the floor price in respect of the aforesaid QIP, based on the pricing formula as prescribed under SEBI ICDR Regulations is Rs 35.51 per equity share, PNB said in a regulatory filing.

The merger

Last year, Oriental Bank of Commerce (OBC) and United Bank of India (UBI) were merged into Punjab National Bank (PNB), making PNB India’s second-biggest public sector bank after State Bank of India (SBI).

In a first three-way amalgamation, Vijaya Bank and Dena Bank were merged with Bank of Baroda from April 1, 2019.



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Groww to acquire Indiabulls MF for Rs 175 cr, BFSI News, ET BFSI

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Online investment platform Groww on Tuesday announced that it will be acquiring Indiabulls Mutual Fund for a total consideration of Rs 175 crore. The digital platform will acquire Indiabulls Asset Management Company (IBAMC) and the trustee company for Rs 175 crore, which includes a cash and equivalent component of Rs 100 crore, an official statement said, adding that the transaction is subject to regulatory approvals.

The Alternate Investment Fund (AIF) and Portfolio Management Service (PMS) businesses will be demerged from the existing IBAMC structure, and remain under Indiabulls Housing Finance, it said.

The announcement comes months after capital markets regulator Sebi had allowed digital platforms like fintechs to enter the mutual funds business and Groww becomes the first fintech to enter the asset management space.

Indiabulls Mutual Fund has 13 funds with the Quarterly Average Assets Under Management at Rs 663.68 crore as of March 2021, down from the Rs 921.33 crore in December 2021.

Selling the MF will help the parent Indiabulls Housing Finance’s capital position.

Groww has over 1.5 crore customers who use the platform to invest in mutual funds, stocks and exchange-traded funds (ETFs) and wishes to increase the retail participation in equity, the statement said.

“With the capability to create products, we plan to make mutual funds even more accessible – by making them simpler, more transparent, and by lowering the cost further,” Lalit Keshre, the chief executive and co-founder of Groww, said.

Indiabulls Housing Finance plans to grow its Real Estate Asset Management business through AIF structures in line with its asset-light strategy. While IBHFL will focus largely on retail disbursements, the AIF structure will be used for the wholesale opportunity of early-stage project finance, the statement said.

“We have made the decision to divest our interest in the retail mutual fund business to be able to consolidate capital and provide greater focus in building the company’s real estate asset management business by way of Alternate Investment Fund, in line with the company’s asset-light strategy,” Gagan Banga, the vice chairman and managing director of Indiabulls Housing Finance, said.

The Indiabulls Housing Finance scrip was trading 1.63 per cent down at Rs 183.80 a piece on the BSE.



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